The Competition Authority publishes a draft guidance paper on significant market power

Following the amendment to the Economic Competition Law, the Competition Authority today (3rd February 2019) published for a public hearing a draft guidance paper on how to determine the existence of significant market power.

On 10th January 2019, an amendment to the Economic Competition Law came into force dealing with the definition of a monopoly.According to the previous version of the Law, a corporation was considered a monopolist if it controlled more than half the supply or purchase of a product or service.According to the amendment, a monopolist will now also include anyone who has significant economic market power.In light of this amendment, the need arose to clarify how the Authority believes that the existence of significant market power should be determined.

As the guidance paper explains, significant market power is the power to charge a price that is significantly higher than the price that would be charged in a competitive market.When a company with market power considers whether to raise the prices that it charges the public, it does not have to worry about the expected reaction of customers nor the expected response of other suppliers.

The guidance paper gives a list of characteristics relevant to examining significant market power, including market share, the number and standing of competitors in the same sector, volatility of market share, the degree of differentiation between products in the sector, the importance of the product for retailers, and the existence of barriers to transfer for customers.The statement also deals with barriers to entry into the specific market, barriers to expansion in the market and movement of customers from supplier to supplier.

The way the company behaves can also indicate that it holds significant market power.

The statement emphasizes two basic principles:Firstly, that not everyone whose prices are above cost is deemed to have significant market power and profitability in itself is not sufficient evidence of significant market power.Secondly, the Law does not prohibit holding significant market power but only the abuse of such power.Therefore the determination that an entity has significant market power will never of itself be sufficient to establish a breach of the law;there will always be a requirement for a further indication of conduct that amounts to an unreasonable refusal to supply or abuse of monopoly position to be deemed in breach of the law.

The draft guidance paper is now published for public comments.Anyone who wishes is invited to submit comments on the draft to the Competition Authority by fax to 02-5458555 (fao Atty Tobie Harris) or by email to tobieh@aa.gov.il by 11th March 2019.

How to check who has market power:

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Market share – a company’s market share affects its market power; the larger a company’s market share, the greater the chance that it will have more market power.

How the company conducts itself – sometimes the company’s actions can indicate that it has significant market power.

Barriers to transfer within the market – the harder it is for customers to move from one supplier to another, the greater the chance that the existing supplier has market power.

Other competitors – the number and size of a company’s competitors in its market affects its market power.

Entry barriers to the market – if competitors have to invest a great deal in order to start competing against a company, the likelihood that the company has significant market power increases.

Homogenous products and differentiated products – attention should be paid to the differentiation of products in the same market.The more that the company’s products are differentiated, the greater its market power.